Firms say they lose out in China

COLD-WAR RULES US suppliers of chip-production equipment to China complain that their government is penalizing them by its interpretation of a 1996 arrangement

BLOOMBERG

Applied Materials Inc and other US suppliers of chip-production equipment are losing out in China to overseas rivals because of export rules with roots in the Cold War, an industry group said.

The US government enforces a stricter interpretation than other nations of the 1996 Wassenaar Arrangement, which limits sales to China of products that may be used to make advanced weapons, said Stan Myers, president of Semiconductor Equipment & Materials International (SEMI). The agreement is the successor to earlier rules blocking sales to communist countries.

"We don't want the US government to penalize US suppliers," Meyers said in an interview in Taipei. "The flaw in the Wassenaar Arrangement is regional interpretation."

China, ruled by the Communist Party since 1949, is the world's third-largest chip-buying nation, and demand for tools used to make semiconductors will grow faster there than in any of the globe's six biggest markets, according to SEMI. Sales of chip tools in China next year will rise 34 percent to US$3.9 billion, the organization said in a July report.

ASML Holding NV, Europe's largest maker of chip-making equipment, "has benefited from being able to ship its equipment quicker into China," said Bill McClean, an analyst with US researcher IC Insights. Chinese chipmakers can get any equipment they need from Europe "immediately." ASML said it's complying with EU and US export rules.

"The company has an extensive corporate compliance program," said spokeswoman Elizabeth Kitchener, in an e-mail.

"A number of export-compliance officers have been appointed to enforce and execute the program." The Wassenaar Arrangement is an agreement of 33 nations aimed at controlling weapons, according to Wikipedia, an Internet encyclo-pedia.

The agreement was made after the end of the Cold War to replace COCOM, the Coordinating Committee for Multilateral Export Controls, to restrict exports by Western nations to East Bloc countries, according to the encyclopedia.

A US Department of Commerce official in Washington, DC, declined to comment on the record.

The US government takes longer than the EU and Japan to approve equipment exports to China, according to Maggie Angell, director of public policy for SEMI in Washington, DC.

Applied Materials said the rule has never blocked any sales to China, and it's not sure whether the company may be losing out to overseas competitors.

"The rules are different than what a company in Japan or the Netherlands has to comply with," said Karen Murphy, director of trade with Applied Materials. "It takes about 60 to 90 days for approval in the US. The US government is making progress."

A meeting of Wassenaar Arrangement member nations will be held in Europe on Oct. 5 to vote on proposals aimed at easing restrictions, Murphy said.

"We are starting a dialogue on a global basis," Murphy said, referring to the meeting next week.

License processing in the US should be accelerated, and SEMI is preparing to negotiate with the US government toward that end, Angell said. She didn't say when talks will be held.

"Processing times for companies in the European Union and Japan are measured in terms of days or weeks rather than months," Angell said in an e-mail. "While virtually all US licenses are approved, the process can often take up to six months or even longer."